U.S. tariffs levied on imports of foreign products originally were established to provide revenue for the federal government, predating income or property taxes. Today, however, tariffs are viewed and used differently.

In effect, all tariffs increase the product price, which discourages its demand, and thereby insulates to a degree domestic producers from foreign competition. As a result, each country places higher tariffs on goods determined to be import sensitive.

Industrial and Developing Interests Differ

According to the World Bank, industrial countries are less sensitive to manufactured imports. As a result, they maintain low tariff levels on manufactured goods. However, due to their high sensitivity to agricultural imports, they maintain high tariff levels on agricultural products. In fact, the average tariff protection on agricultural goods is nine times higher than on manufacturing goods.

On average, developing countries’ applied tariffs on industrial products are three to four times as high as those of industrial countries’. And, their tariff levels on agricultural products are even higher.

Data from the World Bank reports that the potential estimated world gain from eliminating existing global trade barriers is $250 billion to $550 billion annually. And approximately one-third of these gains would accrue to developing countries. This represents more than twice the annual flow of aid they receive.

Various Types of Tariffs Are Used

The most common form of duty or tariff is the ad valorem: a tax assessed on merchandise value. In many countries, ad valorem taxes are applied to the value of merchandise, plus the cost of insurance and freight. As a result, when issuing an invoice to your overseas buyer, it is important to itemize these costs.

Specific duties are those charged by weight, volume, length, or any other unit (e.g., charging 10 cents per square yard on fabric). Compound duties call for both an ad valorem and a specific duty on the same product. Alternative duties are those in which the custom official calculates the ad valorem duty and the specific duty and applies whichever is higher.

In addition, a processing fee and a value-added tax (VAT) may be assessed on top of the duties, plus an import processing fee, harbor tax, and other taxes.

The Rising Use of Non-Tariff Barriers

Unlike tariffs, non-tariff barriers are not necessarily quantifiable or measurable and are often hidden. Sometimes referred to as “red tape,” they typically include quotas, boycotts, licenses, standards and regulations, local content requirements, restrictions on foreign investment, domestic government purchasing policies, exchange controls, and subsidies.

In many sectors, it is predicted that environmental, labor, competitive policy, and investment issues increasingly will be used in an abusive manner to discourage imports.

New and Innovative Barriers to Trade

At a time when it appears that foreign government subsidies for industry are decreasing, assistance by other means may be increasing. Some analysts believe the Europeans, Japanese, and even the emerging markets are investing more and more of their resources to do battle with U.S. companies. In a sampling of about 200 overseas competitive projects tracked during an eight-year period, it was estimated that U.S. firms lost approximately one-half of these due in part to government pressure — a hidden and non-quantifiable barrier to trade.

As you can see, there are numerous methods of isolating a market from foreign competition. As an exporter, it’s essential to understand what you’re up against and consider the resources necessary to overcome the barriers applied to your products and services.

About The Author John Manzella [Full Bio]

John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.




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